Compliances cut, MCA gets tough on flouting companies law

Arms of the ministry of corporate affairs (MCA) have stepped up enforcement action in recent quarters to ensure stricter conformity to rules even as the government has reduced the compliance burden of India Inc.

Various Registrars of Companies (RoCs) issued a total of 321 orders against firms in the June quarter, citing alleged lapses under the Companies Act, about a fourth higher than in the previous quarter, which, too, had seen heightened action, according to an analysis of the orders made public.

The RoCs had issued about 930 orders in 2023 and almost 370 in 2022.


"The enforcement action could remain elevated in the coming quarters, as the government seems more focussed on ensuring better compliances by companies. When the compliance burden is already reduced, companies have no excuses for not adhering to the norms," a senior RoC official told ET.

Separately, in an internal communication for stakeholders, reviewed by ET, the MCA said around 560 companies are currently facing inquiry by RoCs and books of around 270 companies are being inspected. Similarly, various regional directors of the ministry are investigating 73 cases, it added.

Wide gamut of offences

The RoC orders have been issued for a wide range of corporate offences, including non-filing of financial statements and annual returns on time, absence of independent directors, failure to report significant beneficial owners, extending loans and advances without the board approval and not maintaining registered offices. Failure to report board resolutions to the RoCs on time and violations of related party transaction rules are also among the lapses for which the companies have been penalised.

Noorul, partner at law firm Lakshmikumaran & Sridharan, said, the role and intervention of jurisdictional RoCs has reduced due to the implementation of the latest version (or V3) of the MCA21 portal for corporate filings and the migration of forms processing to the central registration centre. “Consequently, the RoCs have been focussing on the compliance of companies, which has resulted in a larger number of adjudication orders,” he said.

In some cases, Noorul added, the companies are also approaching the RoCs voluntarily for penalty adjudication.

RoCs have also forayed into new areas to penalise offences. “They have cracked down on companies that are using online platforms to attract investments, thereby not complying with the requirements of ‘private placement’,” he added.

“The RoC has been cracking down on large corporations as well as global private equity firms in relation to compliance with the significant beneficial owners (SBO) declarations. While the SBO provisions have both objective and subjective elements, the latter (in the absence of meaningful guidance) has been ignored by reporting companies,” said Aakash Dasgupta, partner at IndusLaw.

There have been at least four instances in the June quarter when the RoC penalised unlisted companies, having foreign shareholdings, for not taking the steps to identify significant beneficial owners. These include penalties on Microsoft-owned LinkedIn India and Microsoft chairman Satya Nadella, and two Samsung units.

As for the reduced compliance burden and ease of living, finance minister Nirmala Sitharaman, in the budget for FY24, said more than 39,000 compliances had been scrapped and over 3,400 legal provisions decriminalised. These include decriminalisation of several provisions of the Companies Act in two rounds in recent years.

Tech adoption

Experts said RoCs have turned their focus to meaningful enforcement actions in recent years due to increasing tech adoption by authorities, which has made the oversight of various statutory filings by companies easier, faster and more data-driven.

The ministry set up a centralised and faceless centre in February to swiftly process select regulatory filings by companies. These include conversion from private into public companies, reporting various resolutions and agreements, change in names, letter of offer for buybacks and declaration of solvency.